Food stirs growth in dollar stores

October 14, 2011

Supermarkets ignore the trip drain from dollar stores at their own risk. The channel has executive talent, perishables and hot prices as shopper lures.

Despite some talk that Family Dollar is spending too much to spruce up its stores and might be undervalued as a stock, The Lempert Report can’t help but be impressed by its consumables dollar-sales growth – up 12% in fiscal Q4 2011 on expanded assortments, more intuitive merchandise adjacencies, new fixtures, navigational signage and more promotional activities, CFO Ken Smith and CEO Howard Levine told securities analysts on a September 28 call, showed the SeekingAlpha transcript.

Consumables were key to the chain’s 5.5% full-year rise in comp store sales. At Family Dollar, consumables accounted for 69.1% of sales in Q4, up from 67.3% in the same period a year ago.

Add in two key executive appointments – President and COO Mike Bloom (formerly of CVS, itself an aggressive food merchant) and Senior VP of Food Trey Johnson – and Family Dollar is poised to digest a greater share of the food market. Indeed, in Q3 2011, overall inventory levels jumped 15%, reportedly due to 20% growth in food assortments and 25% expansion in health and beauty care goods.

While Family Dollar and others like it (Dollar Tree, Dollar General, Fred’s, 99 Cents Only) vie for low-income household food trips against Walmart (59% of $25,000 and under households shop the dollar-store channel once a month, says the Agr-Food Trade Service), these chains are also upping their food game to draw in more middle-class and upscale shoppers who love a deal. Frozen, refrigerated and healthier foods on hand are part of their appeal, as is better merchandising.

As dollar stores expand their site counts, they’re also becoming more convenient to reach and will have a greater impact on supermarket trips.